The S&P 500 closed out its fourth consecutive week with losses, marking a nearly 5% decline for September. This performance stands as the worst monthly showing since December, reflecting investors grappling with the Federal Reserve’s message of prolonged higher interest rates. However, more significant risks are on the horizon in the coming week.
Unless a last minute miracle intervenes, the U.S. government is set to shut down at midnight on Sunday—a measure once deemed extreme but now distressingly common in a politically charged Washington. This impending shutdown, the 15th since 1981, differs from most as it doesn’t stem from a partisan showdown but rather pits far-right Republicans against the rest of their party. Such an event would inflict hardships on American families and generate economic headwinds that could impede progress towards a smooth economic landing.
Simultaneously, negotiations between the United Auto Workers and Detroit’s prominent automakers, concerning a new contract encompassing issues like pensions and wage increases, remain unresolved. Carmakers, despite recent substantial profits, assert that an indefinite strike could push them to the brink of bankruptcy.
In this environment, escalating treasury yields continue to undermine potential gains in the stock market, leaving us with a looming question mark regarding the outcome.
Future Wealth‘s Insight
The most substantial risk isn’t necessarily for equities but rather for bonds. Bond yields are on the rise, in tandem with oil prices, with the 10-year Treasury yield surpassing 4.6%. Should this trajectory persist, it may rekindle concerns and usher in the third consecutive year of bond market losses. For those adhering to conventional 60-40 stock/bond portfolios and similar strategies, it’s a reminder that one-size-fits-all approaches may offer short-term comfort but fall short in ensuring a secure retirement over the long haul. This also applies to those who exclusively invest in equity index funds and harbor unwarranted optimism.
The reality is that these unfolding events could signify an impending crisis. How we adjust our investment portfolios in response will ultimately determine who emerges victorious on the other side.